Sterling falls after UK manufacturing growth continues to slow slashing likelihood of a May rate hike

 
Rebecca Smith
The upturn in the UK manufacturing sector slowed
The upturn in the UK manufacturing sector slowed (Source: Getty)

UK manufacturing growth continued to slow in the second quarter, with the seasonally adjusted IHS Markit/CIPS purchasing managers' index dropping to a 17-month low of 53.9 in April, down from 54.9 in March.

Anything above 50 indicates expansion, and the PMI has signalled expansion in each of the past 21 months, but the reading was below expectations of 54.8.

The pound dipped immediately against the dollar, down 0.49 per cent to $1.3695. It fell 0.21 per cent against the euro to €1.1372.

Read more: London financial services pointed to for slowdown of productivity growth

Rob Dobson, Director at IHS Markit, which compiles the survey, said:

The start of the second quarter saw the UK manufacturing sector lose further steam. The headline PMI dipped to a 17-month low as growth of production, new business and employment all slowed.

While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance, making the chances of a near term hike in interest rates by the Bank of England look increasingly remote.

Manufacturing production rose again, with firms reporting that output was scaled up in response to higher intakes of new business and stronger client confidence, as well as improved weather. However, growth of output and new orders eased, while business optimism dropped back to a five-month low.

For the month, manufacturing employment increased, with the rate of job creation easing to the weakest level in 14 months.

Dobson said at present, the sector looks unlikely to pick up "on the near-stagnant performance signalled by the opening quarter's GDP numbers".

"Looking ahead, the trend in manufacturing production is likely to remain subdued," he said. "Weak demand meant firms are seeing backlogs of work fall and stocks of unsold goods rise, limiting the need for output to rise in May. Business optimism has also dipped to a five-month low as concerns about Brexit, trade barriers and the overall economic climate remained widespread."

Mike Rigby, head of manufacturing at Barclays, said the loss of momentum was "no reason to get carried away just yet".

He said:

Growth in output continues to tick up, albeit slower than in previous months, and new orders and employment remain in positive territory.

Manufacturers continue to report healthy order books from the ongoing improvement in global export markets and although challenges with the supply-chain are persisting, manufacturers remain optimistic and, as they have proved time after time, they are good at just getting on with business.

Read more: UK manufacturing profitability reaches second-highest value to date

Related articles